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MHA withdraws Order Requiring Compulsory Payment of Wages

The National Disaster Management Authority vide its order dated May 17, 2020 has extended the lockdown till May 31, 2020 but with limited restrictions. Concurrently, the National Executive Committee, Ministry of Home Affairs (“MHA”) vide its order dated May 17, 2020 (“MHA Order”), in exercise of its powers under the Disaster Management Act, 2005, also issued directions and guidelines for implementation of the lockdown measures.

One of the important development in the MHA Order is that all previous orders issued by the National Executive Committee in exercise of its powers under Section 10(2)(l) of the Disaster Management Act, 2005 shall cease to have effect from May 18, 2020. The orders that stand withdrawn by the MHA Order includes the contentious order dated March 29, 2020 issued by the MHA (“MHA Wage Order”) which directed the State Governments/Union Territory Governments to take all necessary steps and issue necessary orders to ensure, inter alia,  that “All the employers, be it in the Industry or in the shops and  commercial establishments, shall make payment of wages of their workers, at their work places, on the due date, without any deduction, for the period their establishments are under closure during the lockdown”.

Brief Background on Payment of Wages during Lockdown

The Ministry of Labour and Employment had issued an advisory on March 20, 2020 (“Advisory”) advising all employers of public and private establishments to extend their cooperation by not terminating the employees, especially casual and contractual workers, or reducing the wages of such employees. The Advisory further stated that in case the place of employment is made non-operational due to the COVID-19 pandemic, then the employees of such unit will be deemed to be on duty.

Thereafter, the MHA Wage Order was issued. Pursuant to the issuance of the Advisory and the MHA Wage Order, most of the states in India also issued orders/advisories (applicable up until the initial lockdown, i.e. till March 31, 2020) on similar grounds, i.e. advising or directing employers not to terminate the employees/workmen and to treat the lock-down period as a ‘paid leave’ for all its employees.

Subsequently, in view of the extension of the nationwide lockdown, some states extended the applicability of the orders beyond March 31, 2020 or issued new orders under the Epidemic Diseases Act, 1897 stating that the employees (including temporary/contractual/outsourced, etc.) of private establishments, required to stay at home in view of the government order shall be treated as ‘on duty’ and shall be paid in full in this respect.

The above stated orders including the MHA Wage Order and several advisories and directions issued by the states were challenged by the industry before the Supreme Court of India as being unconstitutional on several grounds including that they impinge upon the fundamental right to freedom of the industrial units and enterprises to carry on any occupation, trade or business under Article 19 of the Constitution of India as it will lead to collapse of the industrial units if they are forced to pay salaries without any revenue. The notices have been issued in the petitions to the Government of India and respective states, but no stay order has so far been granted by the Apex Court other than an order in a few of the petitions that no coercive action will be taken against the employers.

Notwithstanding the above MHA Wage Order and state government directions, many employers initiated measures such as reduction of salaries (forced as well as voluntary), leave without pay, adjusting the applicable annual paid leaves against the days without work, terminating large number of employees and in some extreme cases declaring bankruptcy. Faced with the above difficulties, a few trade unions and workers have also filed counter petitions seeking protection from wrongful termination and payment of wages. In one such petition filed by the Rashtriya Shramik Aghadi, a contract labourers’ union, the Aurangabad Bench of the Bombay High Court, on May 12, 2020, held that the principle of ‘no work-no wages’ cannot be applied during the present extraordinary situation prevailing in the country due to the COVID-19 pandemic and directed the principal employer to ensure that the contractor pays full wages, save and except food allowance and conveyance allowance, to the employees for the months of March, April and May, 2020.

Now considering that the new MHA Order has lifted most of the restrictions including the restrictions on private offices and industrial units to operate (subject to certain social distancing/protection norms and following the practice of working from home as far as possible), the previous MHA Wage Order that all the employers, will need to make payment of wages of their workers, without any deduction, for the period their establishments are under closure during the lockdown is no longer relevant. This is so as most employers (other than under the prohibited activities) are now authorised to normalise their operations and require employees to report back to work.

The withdrawal of the MHA Wage Order allows employers to govern the terms of employment including payment, retrenchment, lay-off and termination as per the provisions of the respective employment agreements and the applicable legislations such as the state specific Shops and Establishments Act, Industrial Disputes Act, 1947 and other applicable labour laws without the contravention of the MHA Wage Order. This is however subject to any further orders or directions being issued by the government specially related to employees in the near future.

For Covid 19 related legal updates, please refer to https://lexcounsel.in/newletters/newsletters-2020/ and Mondaq at https://resources.mondaq.com/mir/articles.aspx and for Covid 19 related articles, please refer to https://lexcounsel.in/articles-2020/.